Last in, First out is what LIFO stands for. It suggests that the cost of the inventory will be equal to the cost of the most recent inventory added to the stock whenever it is recorded as sold. FIFO (First in First Out) and LIFO are the most practical approaches to inventory valuation.
The following are the LIFO method’s primary benefits:
The LIFO approach works well for matching revenue and expenses.
It is straightforward to use and comprehend.
It makes full material cost recovery possible.
It works best when prices are going up.
Limitations of the LIFO approach
The following are the LIFO method’s main drawbacks:
In light of current circumstances, inventory valuation is meaningless since it does not take into account current pricing.
It is impossible to compare the costs of identical jobs due to price variations.
When receiving rates vary greatly, calculations become difficult and time-consuming.
